A month has gone by since the last earnings report for Prestige Brands (PBH - Free Report) . Shares have lost about 2.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Prestige Brands due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Prestige Consumer Q4 Earnings & Sales Beat Estimates
Prestige Consumer came out with fourth-quarter fiscal 2019 results. The company posted adjusted earnings of 72 cents per share, up 16.1% from the year-ago quarter’s 62 cents. This upside can be attributed to solid consumption trends at the core brands. Also, the figure surpassed the Zacks Consensus Estimate of 70 cents and marked its fifth consecutive quarter of earnings beat.
Total revenues of $241 million exceeded the Zacks Consensus Estimate of $237 million. Although the top line dropped 5.8% year over year, organic revenues rose 3.2% on the back of robust consumption trends at core categories and changes in revenue accounting policies. We note that organic revenues don’t include the impact of the sale of the Household Cleaning segment and foreign currency movements.
Gross profit came in at $138.2 million, reflecting a decline of 2.1% from the prior-year quarter’s figure. However, gross margin expanded 150 basis points (bps) to 56.9% in the fiscal fourth quarter, primarily driven by the divestiture of the Household Cleaning segment, partly negated by the redesigned BC and Goody’s packaging and certain costs related to the aforementioned divestiture.
Adjusted EBITDA was $83.7 million, down 1.8% year over year, owing to the Household Cleaning segment divestiture. Adjusted EBITDA margin expanded 140 bps to 34.7%.
Following the divestiture of the Household Cleaning segment on Jul 2, 2018, Prestige Consumer is currently operating two segments — the North American OTC Healthcare and the International OTC Healthcare.
Revenues in the North American OTC Healthcare segment amounted $214.9 million, up 1.3% year over year on the back of increased consumption at core categories and changes in revenue accounting policies.
Revenues in the International OTC Healthcare segment totaled $26.1 million, up 8.3% from the year-ago quarter. The rise was attributable to increased consumption at core categories, and timing of shipments and distributor orders, which were partly negated by currency headwinds to the tune of $1 million.
The company exited the quarter under review with cash and cash equivalents of $27.5 million, net long-term debt of $1,798.6 million and shareholders’ equity of $1,095.8 million. Also, the company lowered its debt by $200 million in fiscal 2019. Net cash provided by operating activities in the fiscal year was $189.3 million.
Management approved a share repurchase program worth $50 million. Under this plan, Prestige Consumer can buy back shares through May 2020.
Management issued fiscal 2020 guidance, wherein it anticipates growth in product categories to be offset by lower retail inventory and consolidation plans. Owing to these factors, organic growth is projected to be flat year over year in fiscal 2020.
In fiscal 2020, the company expects revenues of $951-$961 million and adjusted earnings per share of $2.76-$2.83. In this regard, the company highlighted that adjusted earnings will be more in the second half of fiscal 2020 due to increased A&P and G&A spending in the first half. Additionally, free cash flow is forecasted to be $200 million or more in the said period.
Moving on, Prestige Consumer is on track with its three core strategies, and also making efforts to maintain a strong financial profile and maximize capital allocation. Proceeds from capital allocation efforts will enable the company to reduce debt to some extent and repurchase shares up to $50 million.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -5.5% due to these changes.
Currently, Prestige Brands has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Prestige Brands has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.